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On April 17, 2019, the United States Department of the Treasury (“Treasury”) issued its second round of proposed regulations related to investments in Qualified Opportunity Zones (“QOZs”) and Qualified Opportunity Funds (“QOFs”). This guidance supplements Treasury’s first round of proposed regulations issued in October 2018.
The Tax Cuts and Jobs Act of 2017 created the QOZ concept to provide tax advantages for investments in lower-income areas. Investors who realize certain capital gain income may reinvest in a QOF within 180 days to defer and potentially achieve exemption from capital gains tax on QOF investments.
This article highlights some of the critical issues addressed by the latest round of guidance, as they apply to QOF investors, QOF managers, and operating businesses within a QOZ. This article also discusses open issues.
Despite the clarity on certain issues provided by the second round of proposed regulations, many issues remain open. Significantly, Treasury has said that it expects to issue administrative rules applicable to a QOF that fails to maintain the required 90 percent investment standard. Treasury is also expected to address the information reporting requirements applicable to QOFs. This could include revisions to the Form 8996 to require additional information such as the employer identification number (EIN) of the QOZ businesses owned by a QOF and a breakdown of investments in certain Census tracts within QOZs.
Gene Chianelli is a tax law attorney with more than 20 years of experience assisting private and public entities with state and federal tax policy, planning, and compliance. He is a member of the North Carolina Bar Association Tax Council and currently serves as an adjunct professor at Campbell University's Lundy-Fetterman School of Business, where he teaches advanced income taxation to law students and students enrolled in the school's Master of Trust and Wealth Management program....LEARN MORE